Despite the fact that mortgage rates are at the highest rates they’ve been in decades, the housing market seems like it could be on the rebound.
On Thursday, the National Association of Realtors reported that pending home sales actually increased in September. This measure is seen as one of the key metrics for how the residential real estate market is performing.
Going into the month, forecasters had predicted that the NAR index would decrease by 1 percent month-over-month. However, when all was said and done, the index actually increased by 1.1%.
The index tracks the signing of contracts for existing homes that are for sale. In many cases, these pending home sales end up closing between 45 and 60 days later. That’s why they’re seen as one of the leading indicators of the housing market’s health.
In the last year, existing home sales have slumped considerably due to the fact that interest rates on mortgages have soared. In just a year’s time, they’ve gone from about 3% to almost 8%.
This has convinced a lot of homeowners to remain in their own homes, since they have such a great interest rate compared to what’s available today. If they were to sell and buy a new home, for instance, their monthly payment could be astronomically higher, even if they ended up getting a mortgage for the same amount of money.
So, instead of selling their homes, many people have decided to remain there, and even tap into their home equity to fund home renovation and expansion projects.
All of this has resulted in total home sales remaining quite low. And while home sales increased from month to month, they’re still low compared to past years.
As the chief economist for NAR, Lawrence Yun, said:
“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years. Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”
Overall, the NAR is expecting home sales to be rather low this year, totalling 4.15 million by year’s end. If that holds true, it would mark the lowest level since back in 2008.
That being said, the big downturn in the housing market could be coming to a close. The NAR also said that it expected sales of existing homes to bottom out at a home rate of 4.01 million in the fourth quarter of this year. Then, the association says it expects home sales to begin increasing month-to-month in 2024.
By the end of 2024, the NAR predicted that there will be 4.71 million existing home sales.
The association is basing its prediction, though, on the assumption that interest rates for mortgages would decrease to 6.3% by the fourth quarter of 2024.
If the economy continues to grow unexpectedly, though, the Federal Reserve could decide to increase its benchmark interest rate more to try to stamp out inflation. If that happens, it’s possible that mortgage rates would remain elevated for longer than expected.
